A subscription hardware provider’s guide to HaaS agreements

A hardware-as-a-service (HaaS) agreement is the most important document in a hardware provider’s business. But these agreements are often given insufficient consideration. A hardware-as-a-service agreement not only sets expectations, but ensures that both the provider and the customer meet those expectations over the course of the contract. 

Hardware subscriptions offer many benefits. They make for mutually beneficial partnerships, deeper customer loyalty, and a more profitable business over the long run. But the primary benefit for the provider is the recurring revenue that comes from long-term relationships with customers. Thus it is especially important that expectations for these relationships are managed carefully.

What is a hardware-as-a-service agreement?

A hardware-as-a-service agreement is a legally binding contract between a HaaS provider and a customer that outlines the responsibilities of both parties. A standard HaaS agreement will cover the most important elements of the business relationship: services offered; minimum response times; timing of invoices and payments; how contract renewals, renegotiations, and disputes should be handled; what the legal protections are; and more.

Writing a clear hardware-as-a-service agreement is an essential step in ensuring all parties understand and are satisfied with the parameters of the relationship. A HaaS agreement answers some fundamental questions: What are the goals of both parties in this relationship? What does each party intend to achieve from the engagement? How will those goals be achieved? What are the duties each party is expected to perform over the course of the partnership?

How do hardware-as-a-service agreements work?

Hardware-as-a-service is a business model in which customers receive hardware-related services from an equipment provider on an ongoing basis. In a hybrid HaaS agreement, the provider sells the hardware outright and offers services on an ongoing basis. In a full subscription HaaS agreement, the provider does not sell the hardware, but instead offers an ongoing package that includes use of the hardware alongside the services.

For the customer, steep upfront costs become more manageable monthly payments under a full subscription model, and the HaaS provider sees business growth due to recurring revenue. This structure also allows the provider and customer to take advantage of more flexible bundling opportunities.

In either HaaS model, the provider continues to monitor the hardware and offers associated services such as installation, a maintenance and service plan, upgrades, and support. The HaaS agreement itself sets the foundation of the relationship between a HaaS provider and the customer for as long as the HaaS company is providing hardware and accompanying services.

A good HaaS contract template gives the HaaS company a repeatable way of scaling the business and increasing profits—provided that the agreement is customized for every customer. The agreement supports the relationship in several key ways:

The HaaS agreement details the scope of services: It provides a framework under which the hardware provider can organize, define, and present their service offerings to customers. By including a well-defined list of services in the contract, the agreement doubles as a kind of sales tool. The list reinforces the value the HaaS company will provide (e.g., cloud services and cloud backup, monthly reporting, ongoing maintenance and software upgrades, security threat detection and remediation, unlimited remote and on-site support).

The HaaS agreement provides clarity on pricing and billing: It spells out the pricing details on every service to be provided, as well as the terms and conditions of payment. It also allows the hardware company to influence how they get paid. In particular, this reduces ambiguity around how each service will be invoiced. This serves both parties when it comes to financial forecasting and planning over the course of the relationship.

The HaaS agreement prevents disputes and details how to resolve them: It takes into account all foreseeable scenarios that may arise over the course of the relationship. In an unexpected or unprecedented situation, a hardware-as-a-service agreement will be the most important resource for how to proceed. It covers conflicts, sets guidelines for how disputes should be resolved, and helps to avoid litigation. 

Four critical questions to shape the business terms of a hardware-as-a-service contract

Before drafting a HaaS contract, a hardware provider transitioning to a subscription model must clearly define the HaaS solution, then determine the HaaS sales model (with a bundled HaaS offering if applicable), and finally develop the HaaS pricing plan (including the HaaS billing model).

Once the provider is clear on these components, there are some essential questions to ask before drafting the HaaS agreement itself:

What hardware and services does this customer require?

Understanding the number of hardware assets and the specific services the customer requires (which software applications, what technical support services, etc.) allows the provider to tailor the HaaS agreement to meet the customer’s unique needs. Researching the customer’s business is a critical step in this process, as it helps tailor the contract based on factors like industry, scale, operations, and objectives. This clarity not only supports cost estimation and resource planning but also enables the provider to articulate the value of their offering, justify pricing, and negotiate terms that benefit both parties. By aligning the agreement with the customer’s specific needs, the provider increases the likelihood of a successful partnership while ensuring the “Scope of Services” section of the contract is precise and actionable.

How long is this contract term?

A HaaS provider needs to know how long the customer anticipates needing the hardware subscription. The duration of the contract may influence the pricing model (e.g., long-term contracts may include discounts that short-term contracts do not). Understanding the timeframe also helps the provider manage the lifecycle of the hardware—including hardware allocation planning, maintenance schedules, and potential upgrades—to facilitate seamless inventory management and supply chain logistics. Clarity on the term of the agreement is also necessary for the hardware provider to calculate revenue and depreciation amounts. This in turn allows for more accurate revenue forecasting, financial planning, and cash-flow management.

What service-level agreements (SLAs) are needed? 

Service-level agreements (SLAs) should be determined through internal assessment, resource planning, technical feasibility, historical data, and industry standards. SLAs may vary depending on the needs and preferences of the customer. Before drafting the hardware-as-a-service agreement, the HaaS provider should assess the customer’s requirements and capabilities to determine which SLAs are feasible and realistic. By determining SLAs upfront, the provider and customer can agree on clear expectations regarding performance, uptime, availability, response times, and other service metrics. This prevents misunderstandings or disputes later on.

What are the appropriate billing and payment terms?

Invoicing terms must be clearly specified in a HaaS agreement, and the company needs to ensure that HaaS billing criteria align with contractual obligations. This is crucial because hardware-as-a-service contracts often involve ongoing payments tied to equipment milestones, maintenance, or service levels rather than a one-time purchase. Unfortunately, ambiguities in billing terms are common, and can strain customer relationships. Key considerations include defining the billing cycle, agreeing on acceptance criteria, determining whether fees are fixed or variable based on usage, and setting the terms for late payments or adjustments. Establishing clear invoicing and payment terms not only builds trust but also ensures predictable revenue streams for the provider and cost transparency for the customer.

Additional questions to ask when creating a hardware-as-a-service agreement

Depending on the HaaS business model, hardware providers may need to consider other questions when drafting a HaaS contract. Some examples of more specific considerations include:

• Does the customer require any customization or integration of hardware devices with existing systems or software? 
• How will ownership of the asset be recorded and managed? When, if ever, will the title for the assets transfer?
• How and when will taxes be assessed and who will be responsible? What about other fees such as customs duties and import tariffs?
• How will utilization be measured and validated on assets, if applicable?
• What are the customer’s security requirements and concerns? How will the hardware be protected against unauthorized access, data breaches, or other security threats?
• How will the customer’s data be handled and protected? Are there any data privacy regulations or compliance requirements that need to be addressed in the contract?
• How will compliance with applicable laws and regulatory requirements be ensured?
• What dispute resolution mechanisms will be included in the contract in case of disagreements or disputes between the parties?

By asking these questions and addressing them in the hardware-as-a-service agreement, the hardware provider can ensure that the contract accurately reflects the expectations and requirements of both parties, laying the foundation for a successful HaaS partnership.

Practical advice for drafting a successful hardware-as-a-service agreement

The above questions are critical to establishing clear, mutually beneficial expectations in the HaaS contract. There are several other actions that are important for HaaS providers to take in order to protect their interests in the agreement:

Consult with your finance professionals

Before crafting a HaaS contract, it’s crucial to consult with finance professionals who understand both the accounting treatment of hardware assets and the complexities of recognizing subscription revenue over time. The structure and language of the HaaS agreement will directly impact how revenue, costs, and asset depreciation are recognized and reported, potentially affecting your financial statements for years to come. Whether it’s your CFO, controller, or auditors, their input is essential to ensure the contract achieves your company’s goals based on the relevant accounting standards. This proactive approach allows for necessary adjustments upfront, avoiding costly or complex repercussions later. A well-informed finance review is your best safeguard for long-term financial clarity and compliance.

“As a finance leader, I review every HaaS contract and related amendments before they go to the customer. These thorough reviews ensure the contract aligns with accounting standards as well as meet our intended financial objectives. This also avoids potential compliance issues, reduces audit complexity, and protects the company’s financial integrity. It’s always better to address concerns earlier rather than deal with costly corrections down the line.”

Alan Federman

VP Finance, Canvas Construction

Engage a legal expert with specialized experience in HaaS

Navigating the complexity of HaaS contracts requires working with legal professionals with in-depth knowledge of the field. It’s essential to work with someone who has experience specifically in drafting and reviewing hardware-as-a-service agreements. An experienced HaaS legal professional understands the unique risks and challenges involved, from liability concerns and compliance issues to IP protections and revenue implications. They’ve seen the potential pitfalls before and know how to mitigate them effectively. It’s far better to make strategic adjustments now than to face unintended consequences once the agreement is signed.

Make the HaaS contract auto-renewing

Making a hardware-as-a-service contract auto-renewing allows for continuity of service. It provides convenience for both parties by eliminating the need to renegotiate or manually renew the contract every time it expires, reducing administrative burdens for both the provider and the customer. For HaaS providers, auto-renewal helps ensure customer retention and a predictable stream of revenue by streamlining additional contract terms without the need for additional sales efforts. This can strengthen the long-term relationship between the provider and the customer.

Include an annual price increase clause

Writing an annual price increase into a HaaS contract protects the hardware provider from increasing costs. For hardware especially, the impacts of inflation, rising operating expenses, vendor price increases, supply chain costs, or other capital investments are pronounced. Occasional price increases allow HaaS providers to anticipate market conditions, mitigate risk, ensure ongoing innovation in their services, and remain competitive. Including annual price increases upfront also allows for fairness and transparency, since both parties can understand and plan for price adjustments. However, it's essential to ensure that the price increase mechanism is clearly defined, reasonable, and communicated effectively in order to minimize potential disputes and maintain positive business relationships.

Although these last two tips address specific provisions to incorporate directly into the contract, there are many other essential clauses your hardware-as-a-service contract should contain.

Beyond our software platform to support hardware-as-a-service businesses, Hardfin also connects companies with a network of legal and accounting professionals to discuss their hardware-as-a-service agreements. Whether you’re interested in software or services, feel free to reach out for an intro call. We’d love to hear from you.

Disclaimer. This is not legal advice. We share our perspective based on work with leaders across the hardware industry, but it is not intended to guide every case. For a deeper assessment of your own situation, get in touch and we can connect you with the right professionals.